Add Bpcl Ltd for the Target Rs 370 by Emkay Global Financial Services Ltd
BPCL reported standalone EBITDA loss/net loss of Rs59.8/53.8bn in 1QFY27, materially better than our loss estimate of Rs160.8/179.0bn, largely driven by better-than-expected refining earnings and lower opex. Reported GRM of $41.4/bbl was above our estimate of $29.7/bbl, while blended marketing margin of negative Rs22/kg was slightly better than estimated. Management highlighted that crude availability remains comfortable with diversified sourcing, while supplies are secured till Aug-26. Spot sourcing rose to 69% from 44% yoy, while Russian crude share stood at ~38%. Spot premiums and freight surged during 1QFY27, but have since materially eased from the peak, although the situation remains fluid. BPCL booked Rs19.0bn of LPG subsidy, while LPG under-recoveries rose to Rs53.8bn in 1Q from Rs13.4bn qoq, with Jul/Aug under-recoveries at Rs490/210 per cylinder. First cargo from Mozambique is expected by FY28-29, with the project estimated to generate ~$350mn of annual revenue. We remain cautious on OMCs amid the uncertain geopolitical environment with significant crude price volatility. We largely retain FY28E/29E EBITDA while revising up our FY27 estimates on stronger 1Q GRM. Rolling over to Jun-28, we raise our TP by ~6% to Rs370 from Rs350; ADD.
Results highlights
BPCL’s refining volumes declined 3% yoy to 10.2mmt (1% miss), with overall utilization at 115%. Distillate yield was largely steady at 84%. Domestic sales volume rose 0.3% yoy to 13.6mmt vs 5.0% yoy degrowth for the industry, with overall volume up 1% yoy to 14.1mmt (3% beat). Exports rose 46% qoq to 0.51mmt. Petrol/diesel sales volume rose 8.4%/7.9% yoy vs industry growth of 5.8%/2.8% yoy, thereby implying market share gains. ATF sales rose 7.4% yoy, while LPG was down 21% yoy. Total opex rose 10% yoy but declined 28% qoq to Rs77.4bn (17% below estimate). Finance costs fell 13% qoq to Rs4.2bn, while D/A rose 1% qoq to Rs20.7bn. Adjusted other income of Rs9.1bn came at a 16% beat (up 25% yoy; down 15% qoq), while forex gains stood at Rs3.5bn. Gross debt rose 62% yoy/66% qoq to Rs174bn, while capex stood at Rs44.3bn.
Management KTAs
Landed crude cost premium over the IBC widened to $13-15/bbl in 1Q, driven by elevated freight, insurance, and spot premiums (~$10/bbl). BPCL maintained industry-leading RO throughput at 157kl/month, while focusing on premiumization. Bina refinery achieved 31% progress, while Mumbai PRFCC reached 7% completion. Mozambique project completion stands at 42%; the Brazil FPSO contract has been signed, with first oil/gas expected by FY31/32. FY27 capex guidance is Rs250bn, with spends expected to accelerate in 9MFY27. BPCL retained crude inventory of 3.8mmt (35 days) as of 1Q-end.
Valuation
We value BPCL on SOTP-EV/EBITDA-based methodology, with investments at 30% holdco discount. We slightly increase our blended target EV/EBITDA to 5.8x. Key risks: Adverse pricing and downstream margins, currency movement, GoI policies, and project issues.
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